Question 1

What is the expected,constant growth rate of dividends for a stock with a current price of $100,expected dividend payment of $10 per share,and a required return of 16 percent?

Accepted Answer

A)  6.00 percent 
B)  6.25 percent 
C)  8.00 percent 
D)  10.00 percent 
A)  6.00 percent 
B)  6.25 percent 
C)  8.00 percent 
D)  10.00 percent

Question 2

What should be the current price of a stock if the expected dividend is $5,the stock has a required return of 20 percent,and a constant dividend growth rate of 6 percent?

Accepted Answer

A)  $19.23 
B)  $25.00 
C)  $35.71 
D)  $37.86 
A)  $19.23 
B)  $25.00 
C)  $35.71 
D)  $37.86

Question 3

Holding risk constant,an increase in dividend yield will tend to decrease a firm's rate of growth.

Accepted Answer

A) True 
 B)False

Question 4

Technical analysts are most likely to be successful in a market that is considered:

Accepted Answer

A)  semi-strong-form efficient. 
B)  not to be strong-form efficient. 
C)  not to be weak-form efficient. 
D)  to follow a random walk. 
A)  semi-strong-form efficient. 
B)  not to be strong-form efficient. 
C)  not to be weak-form efficient. 
D)  to follow a random walk.

Question 5

A stock paying $5 in annual dividends sells now for $80 and has an expected return of 14 percent.What might investors expect to pay for the stock one year from now?

Accepted Answer

A)  $82.20 
B)  $86.20 
C)  $87.20 
D)  $91.20 
A)  $82.20 
B)  $86.20 
C)  $87.20 
D)  $91.20

Question 6

Which of the following is least likely to account for an excess of market value over book value of equity?

Accepted Answer

A)  inaccurate depreciation methods 
B)  high rate of return on assets 
C)  the presence of growth opportunities. 
D)  valuable off-balance sheet assets 
A)  inaccurate depreciation methods 
B)  high rate of return on assets 
C)  the presence of growth opportunities. 
D)  valuable off-balance sheet assets

Question 7

In the calculation of rates of return on common stock,dividends are _______ and capital gains are ______.

Accepted Answer

A)  guaranteed; not guaranteed 
B)  guaranteed; guaranteed 
C)  not guaranteed; not guaranteed 
D)  not guaranteed; guaranteed 
A)  guaranteed; not guaranteed 
B)  guaranteed; guaranteed 
C)  not guaranteed; not guaranteed 
D)  not guaranteed; guaranteed

Question 8

What proportion of earnings is being plowed back into the firm if the sustainable growth rate is 8 percent and the firm's ROE is 20 percent?

Accepted Answer

A)  8 percent 
B)  12 percent 
C)  20 percent 
D)  40 percent 
A)  8 percent 
B)  12 percent 
C)  20 percent 
D)  40 percent

Question 9

Given the efficiency of our financial markets,:

Accepted Answer

A)  there is no justification for technical analysts. 
B)  there is no justification for fundamental analysts. 
C)  both technical and fundamental analysts serve a useful function. 
D)  all investors should index their portfolio. 
A)  there is no justification for technical analysts. 
B)  there is no justification for fundamental analysts. 
C)  both technical and fundamental analysts serve a useful function. 
D)  all investors should index their portfolio.

Question 10

What is the expected dividend to Be paid in three years if yesterday's dividend was $6.00,dividends are expected to grow at a constant 6 percent annual rate,and the firm has a 10 percent expected return?

Accepted Answer

A)  $6.75 
B)  $7.15 
C)  $7.80 
D)  $9.37 
A)  $6.75 
B)  $7.15 
C)  $7.80 
D)  $9.37

Question 11

Assuming all of the following firms have a required return of 14 percent,which would you expect to have a positive present value of growth opportunities?

Accepted Answer

A)  a firm with a P/E ratio of 9. 
B)  a firm with a P/E ratio of 6. 
C)  a firm with an E/P ratio of 20 percent. 
D)  None of the choices are expected to have positive PVGO. 
A)  a firm with a P/E ratio of 9. 
B)  a firm with a P/E ratio of 6. 
C)  a firm with an E/P ratio of 20 percent. 
D)  None of the choices are expected to have positive PVGO.

Question 12

How does competition among investors lead to efficient markets?

Accepted Answer

The search for information and insightfu

Question 13

The expected return on an equity security is comprised of a:

Accepted Answer

A)  dividend yield and ROE. 
B)  current yield and a terminal value. 
C)  sustainable growth rate and a plowback yield. 
D)  dividend yield and a capital gains yield. 
A)  dividend yield and ROE. 
B)  current yield and a terminal value. 
C)  sustainable growth rate and a plowback yield. 
D)  dividend yield and a capital gains yield.

Question 14

If it proves possible to make abnormal profits based on information regarding past stock prices,then the market:

Accepted Answer

A)  is weak-form efficient. 
B)  is not weak-form efficient. 
C)  is semi-strong-form efficient. 
D)  is strong-form efficient. 
A)  is weak-form efficient. 
B)  is not weak-form efficient. 
C)  is semi-strong-form efficient. 
D)  is strong-form efficient.

Question 15

If a stock currently sells for $40.00 and has annual earnings per share of $3.00,the P/E multiple is:

Accepted Answer

A)  0.075 
B)  7.0 
C)  13.33 
D)  None of the choices are correct. . 
A)  0.075 
B)  7.0 
C)  13.33 
D)  None of the choices are correct. .

Question 16

How can an analyst be credible in stating that the value of a stock is equal to the discounted value of all future dividends when a company may pay dividends indefinitely and it is virtually impossible to predict dividends beyond some reasonable horizon?

Accepted Answer

At most reasonable discount rates for co

Question 17

When valuing stock with the dividend discount model,the present value of future dividends will:

Accepted Answer

A)  change depending upon the time horizon selected. 
B)  remain constant regardless of the time horizon selected. 
C)  remain constant regardless of growth rate. 
D)  always equal the present value of the terminal price. 
A)  change depending upon the time horizon selected. 
B)  remain constant regardless of the time horizon selected. 
C)  remain constant regardless of growth rate. 
D)  always equal the present value of the terminal price.

Question 18

What constant growth rate in dividends is expected for a stock valued at $32.00 if next year's dividend is forecast at $2.00 and the appropriate discount rate is 13 percent?

Accepted Answer

A)  5.00 percent 
B)  6.25 percent 
C)  6.75 percent 
D)  15.38 percent 
A)  5.00 percent 
B)  6.25 percent 
C)  6.75 percent 
D)  15.38 percent

Question 19

What should be the current price of a share of stock if a $5 dividend was just paid,the stock has a required return of 20 percent,and a constant dividend growth rate of 6 percent?

Accepted Answer

A)  $19.23 
B)  $25.00 
C)  $35.71 
D)  $37.86 
A)  $19.23 
B)  $25.00 
C)  $35.71 
D)  $37.86

Question 20

Dividends that are expected to be paid far into the future have:

Accepted Answer

A)  great impact on current stock price, due to their expected size. 
B)  equal impact on current stock price as near-term dividends. 
C)  lesser impact on current stock price due to discounting. 
D)  no impact on current stock price because they are uncertain. 
A)  great impact on current stock price, due to their expected size. 
B)  equal impact on current stock price as near-term dividends. 
C)  lesser impact on current stock price due to discounting. 
D)  no impact on current stock price because they are uncertain.

Exam 7: Valuing Stocks

What is the expected,constant growth rate of dividends for a stock with a current price of $100,expected dividend payment of $10 per share,and a required return of 16 percent?

What should be the current price of a stock if the expected dividend is $5,the stock has a required return of 20 percent,and a constant dividend growth rate of 6 percent?

Holding risk constant,an increase in dividend yield will tend to decrease a firm's rate of growth.

Technical analysts are most likely to be successful in a market that is considered:

A stock paying $5 in annual dividends sells now for $80 and has an expected return of 14 percent.What might investors expect to pay for the stock one year from now?

Which of the following is least likely to account for an excess of market value over book value of equity?

In the calculation of rates of return on common stock,dividends are _______ and capital gains are ______.

What proportion of earnings is being plowed back into the firm if the sustainable growth rate is 8 percent and the firm's ROE is 20 percent?

Given the efficiency of our financial markets,:

What is the expected dividend to Be paid in three years if yesterday's dividend was $6.00,dividends are expected to grow at a constant 6 percent annual rate,and the firm has a 10 percent expected return?

Assuming all of the following firms have a required return of 14 percent,which would you expect to have a positive present value of growth opportunities?

How does competition among investors lead to efficient markets?

The expected return on an equity security is comprised of a:

If it proves possible to make abnormal profits based on information regarding past stock prices,then the market:

If a stock currently sells for $40.00 and has annual earnings per share of $3.00,the P/E multiple is:

How can an analyst be credible in stating that the value of a stock is equal to the discounted value of all future dividends when a company may pay dividends indefinitely and it is virtually impossible to predict dividends beyond some reasonable horizon?

When valuing stock with the dividend discount model,the present value of future dividends will:

What constant growth rate in dividends is expected for a stock valued at $32.00 if next year's dividend is forecast at $2.00 and the appropriate discount rate is 13 percent?

What should be the current price of a share of stock if a $5 dividend was just paid,the stock has a required return of 20 percent,and a constant dividend growth rate of 6 percent?

Dividends that are expected to be paid far into the future have:

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Net Present Value and Other Investment Criteria

Using Discounted Cash Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, IPOs, and Seasoned Offerings

Debt and Payout Policy

Leasing

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Cash and Inventory Management

Credit Management and Collection

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters

In the calculation of rates of return on common stock,dividends are _ and capital gains are .